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Thursday 10 December 2020

Negative yield...just

Negative rates

Apparently some people have been talking about Australia's recovery being so strong that interest rates could be hiked next year.

That's what the smart money is allegedly talking about, even though the unemployment rate has a long way to fall from 7 per cent to ideally somewhere under 5. 

Meanwhile the AOFM slides into today's inbox with respect to a short term Treasury note tender...

Source: AOFM

For the first time ever the best bid or lowest accepted yield on the March 2021 series was negative, at -0.010 per cent.

Australia is effectively 'paid to borrow', for want of a better phrase, thereby joining the UK, Japan, NZ, and much of Europe in this expanding club. 

Too much can be made of this, given that yields have generally been extremely low since the cash rate was dropped to 0.1 per cent.

As explained by Bloomberg's Stephen Spratt here, the negative yield is largely a function of liquidity, and strength of demand from investors for defensive assets over the volatile Christmas period, especially given the surging Aussie dollar.

The coverage ratio on the comfortably oversubscribed tender was 5.471x.

But still higher interest rates probably aren't a significant risk for the next couple of years, and not only in Australia...

Iron ore soaring

Part of the strength in the Australian dollar must surely be driven by commodities.

In particular, there were fresh 8-year highs for iron ore at the close today as the chart turns vertical.

The 65% Fe grade hit the highest level on record. 

Positive news for the Western Australian economy here.